This is the Truth Network. Welcome to Finishing Wealth, brought to you by CardinalGuide.com. With certified financial planner, Hans Scheil, best-selling author and financial planner helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in finishing wealth, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now, let's get started in just a moment. Let's get started with Finishing Wealth.
Welcome to Finishing Wealth with certified financial planner, Hans Scheil, and today's show is Federal Estate Tax 2026 Tax Increase slash Sunset. And so, you can see that this show has to do with time. And I don't know if you ever have studied this, but it's a really neat thing that the more you study holiness, or the idea of being close to God, the holier you get, you also are closer to eternity. And so the, the closer that you get to God, the less time has any weight on you, it has any consequence. And it's the same thing with stewardship, as we're going to talk about in today's show.
That is, we're better stewards of our money, and we are understanding all the different tax ramifications and those kinds of things. We get closer to God, and time doesn't have the same consequence. And it's very cool that when you think about it, if you remember your first date with your spouse, or, or maybe a time you were deep into prayer or in a Bible study, and you looked at your watch and you went, wow, three hours, how in the world did that happen?
It seemed like it was 20 seconds. Well, love is definitely, you know, one of the fruits of the spirit. Also, God is love. And so as we become more and more in love, the more we, time is not an issue at all.
And so it's a cool thing, really, as we push into stewardship with Hans, and he teaches on this subject, that we can free ourselves from so many consequences as we grow closer to God. Okay. In today's show, we're talking about federal estate tax and the 2026 tax increase that's already baked into the law, which some call the sunset of the tax cuts that were passed back in 2018. And when I wrote the show, it was before the election. And after the election, there's a good chance that some of this sunset is going to go away, or it's going to be postponed, or, you know, what we're calling a 2026 tax increase, which is the current law that could be postponed or eliminated. I mean, a lot of things could happen.
And I think something probably will. So the numbers and the facts that I give you about the federal estate tax are up for grabs that they could be different at a chance because this is really one of the first things they're going to be working on. But let's just take a look at what the exclusion amount is right now. And it's almost $14 million. It's $13,990,000 per person. So that means that if you've got less than that, or substantially less than that, which is most people, you don't need to worry about federal estate taxes, because you fall way under the exclusion. And it means that if people that are wealthy, and they're a married couple, if they plan things right, they actually have exclusions between the two of them of $28 million. So that's a lot of money. And to be passing on when the second one of them passes away, and it passes on to the next generation, $28 million is excluded from the estate tax. And you might say, Well, what are we talking about this for?
This might be 1% of your listeners. Well, we're talking about it because it's something we've had for a long time. It's something that's probably going to be around for a long time, which is the federal estate tax.
It's a political football. And under the current law, the $14 million is going to be cut in half at the beginning of 2026. So it's going to go from $14 million to $7 million. And just for context, in 2006, $14 million now, what's going to be $7 million two years from now, it was $2 million in 2006. So when I got a lot of my training, people were, there were a lot more middle income, upper middle income people. I remember when back this thing was a million or it was $500,000. So there's a number out there, where if you're below it, you don't pay any federal estate taxes.
If you're above it, you need to do some planning to try to minimize these taxes. And right now the number is 14 million. It's going to come down to 7 million.
And again, you might say, Well, what are we doing a radio show? Well, when I have people coming in, I have lots of clients that asked me, how much can I give away to my kids and not pay any taxes? And you know, I'm going to give you that answer real quick in 2025. That's going to be $19,000 is the number they just up to the little bit. You can give one of your kids $19,000. And you don't have to worry a bit about gift and estate taxes. Now, you and your wife, or your spouse, 30 could give 38,000 to one kid, you could give 19, your spouse could give 19. So that's per person amount. But still, if somebody wanted to give their kids to buy a new house, or something $100,000, if they could afford to do that. And I've had this situation come up many times in financial planning, where somebody wants to make a gift to their kids, get them started on a new house. And they're worried about having to pay gifts and estate taxes. And it's a smart worry. Now we could give 19 to her twice.
Now we got 76,000. I mean, there's ways to get around the $19,000 maximum. We also could just give them $100,000 and file an estate tax return and claim part of that $14 million exemption.
So this is a factor for some real people. I also want you to know that we've got to go ahead, just because that's kind of complicated. So if I'm following you, and I hope I am, that say that I had some need to, I want to help my son with a down payment on his house and $30,000, right?
And so I'm understanding that, of course, I could do the 19 without any problem. But if I wanted to give him 30, because it's so far under the idea of the 14 million, I could file an estate tax return. And just show it there with that exemption, it's no problem. I'd still pay no estate tax, right?
That's correct. Okay, so you could give your kid a very large amount of money. You'd have the complication of filing an estate and gift tax return. And you wouldn't have any taxes to. Now, if this was you, and you were wanting to do that, we would just have you give him 19. And then Tammy would give him 11. And he'd have his 30. And we were still wouldn't have to do it.
It gives tax return. So because you can split gifts, I get I get Oh, that's why that's why they pay you the big. Yeah, we actually have a common friend who's a pastor that I'm talking about him now. Yeah, we just figured our way around this. And then we also have the new year coming up.
So we can straddle the year, we can give him some this year, and some more next year. Yeah, I want to add that when you get the future, I mean, we're talking about people that are our age in their 60s. And they've got some amount of wealth, nothing like we've been talking about here. Yeah, they want to pass it on to their kids.
I mean, we could, we could be in a position 2030 years from now where the tax people are levying taxes on average people for estate taxes, and they want to pass it on to their kids. Just simply because they need the revenue in the future. I'm trying to justify it. I'm just this is something that I think you need to follow.
I mean, I'll give you enough information on just to keep you keep you up to date of what's going on. But we also have 17 states in DC that levy in a state or inheritance tax. So around the 50 states in DC, there's 17 of them. And DC that have have an estate tax, and the thresholds are much lower.
They're like a million dollars or 2 million dollars. Yeah, I don't want to start naming states and getting into all that. But that's a consideration. So this is something that is relevant in your part of the tax code. And I'm hoping and thinking that under the new administration is that this thing is the sunsets going to be postponed, or it's going to be eliminated, or it's going to be permanently made a higher exclusion amount, right along in with the tax bill. But it could happen that they're so bent on lowering everybody's taxes or keeping them low, that this might be the negotiating piece that they're going to say, let the wealthy people keep paying federal, let the decrease to 7 million happen. I mean, we just don't know what's going to happen. So I want to quit mumbling about that.
And just kind of move on, which is the point of the video is like, what can you do about this? If estate taxes are a concern, or for the people, like I have several clients that have 10 to 20 million. And even they, when we sat down and did all the math, they were sheepish about these are just average people that have done well and saved well, and been successful in their investments in their real estate. And all of a sudden, they're just sitting on a lot of money. And they're looking at the possibility that sooner or later, they're going to die, and they can leave it to each other without any estate taxes. But if this thing gets lowered to 7 million, they got an issue. So my sense is, we're moving up on our time right now. Yeah, it's a good time to mention that the show is brought to you by Cardinal Guide, cardinalguide.com.
So if you go to cardinalguide.com, there will be a Seven Worries tab. And today's show is going to be a state. Well, it's going to be taxes. Is it under estates, or under taxes? It's under estate. It's estate planning. Okay, under estate planning on the Seven Worries tab. And if you go there, you're going to see a video that was done that's exactly the same title, federal estate tax 2026 increase slash sunset. And if you go there, you're going to see a lot more facts and figures. And of course, Tom has it all in his computer and is going to give you all sorts of information that's there on the video. Or of course, you've got the contact Hans for me, the easier thing, just contact Hans or Tom at the contact page at cardinalguide.com, as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. It's all there at cardinalguide.com. So we'll be right back with a whole lot more on federal estate tax 2026 increase slash sunset.
We'll be right back. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil, and today's show, Federal Estate Tax 2026 Tax Increase Slash Sunset. So Hans, what can we do about it? Yeah, I mean, it's just so that's what the show is really about.
I was probably talking in circles in the beginning because I'm trying to include everybody on our show. And this is pretty much a rich people thing. But I think it's something you still need to be informed about. So the solution to this, or one of the solutions, there's a lot of things that can be done with trusts and planning and things.
And we can show you a number of those things. I'm going to show you the simplest way to deal with it is buying life insurance, and then keeping the life insurance out of the estate. So in the example we gave on the video is a million dollar life insurance policy on a couple.
Alice is 58 and Joe is 67. And they purchased this million dollar life insurance policy primarily for their kids to use to pay the estate taxes when the second one dies. And so what people that are not real knowledgeable about this stuff or life insurance salespeople that go out and sell this stuff, pay estate taxes, they need to be very careful about one thing is you don't want the million dollars of life insurance payoff being included or running up the value of the estate. So with estate taxes at 40%, all you would do is you'd run up the value of the estate by a million, and then 400,000 of it would go in taxes on the million.
And so you certainly wouldn't want to do that. And so we have a way around that, and it's called an irrevocable life insurance trust. So let me explain the life insurance first, and then after we get that explained, we'll talk about setting up the irrevocable life insurance trust. So Joe is 67, Alice is 58, and they're going to pay a premium of $29,000 a year each year for 10 years. So it's going to be $290,000 in premium in total that they're going to pay for this policy.
That's all guaranteed, it's not going to change. And then they're going to be through paying premiums after the 10th year. We could have made this much less expensive if we'd have made the premiums for the rest of their life. But the reason I don't want to do that is one of these two could still be kicking at 95, 98, 100, and somebody could be looking through, what's this life insurance for?
We don't need this. And so I don't want the danger of somebody lapsing the policy in their older years. So by getting rid of the premium in the first 10 years, and the client really liked this too, as they generally feel more comfortable with that. And so you're putting $290,000 into it over 10 years, $29,000 a year. And then whenever the second one of them passes away, a million dollars is going to be paid to their kids. And that million dollars is going to be income tax free. So life insurance is generally free of income tax to the beneficiary. And it's also going to be estate tax free if it was set up properly in the beginning.
Okay, so far? I think so. Just another question. Would it be estate tax free in most states as well? If it's set up properly, that's correct. So we're going to use this irrevocable life insurance trust right from the beginning. And we're going to have to administer it properly.
And it's really all around the premiums. But if we do that, it's going to be estate tax free and income tax free, their kids are actually going to receive a million dollars whenever the second one of them dies. And they're going to receive that money free and clear, presumably to use to pay the estate taxes. Okay.
All right. So how cool is that? I mean, so essentially, here's this person that has this, you know, and I know there's lots of cases I've heard, and it may be the same for smaller people, smaller people that have smaller states, is that inside this estate is this huge business, right? And that business, although it has a great value, it has no liquidity. In other words, you can't get money for it. And so they inherited this business that was worth 20 million. And so they owe this unbelievable amount of tax on it, but they have no liquidity to pay the tax. So this life insurance is the answer to that problem. Am I right?
It absolutely is. And these people, that is their situation. They have, this is a side business, which they've already sold, but they didn't sell the real estate. And the real estate that the business operates out of, this is assisted living homes, they're just small homes where there's like four to six residents living in a home that has four to five to six bedrooms.
And they have like four of these. The real estate value of the four buildings or the four homes is like 12 million. I mean, and they certainly didn't pay 12 million for it.
And the new business owners are just paying them rent, which is mostly tax-free because of depreciation and whatnot. And these are folks that didn't plan to have $15 million, okay, by any shake of the imagination. And what's $15 million?
I mean, Alice is just 58. $15 million could be 30 million, 35 million. So they actually are looking at more than a million dollars, but they just finally just decided, let's get a million started for now and kind of see where that leads us. But it's going to go to their two daughters, Sue and Rita, are going to get a half a million each whenever the second one of them dies. And that's going to be completely separate from the estate. It's going to come out of this trust. So let's talk about the irrevocable life insurance trust.
And the abbreviation in the industry is an ILIT, I-L-I-T. And if you really want to make it even more interested, it's a crummy style ILIT. And when I first studied about crummy trust, it was in the late 80s. I mean, it just sounded kind of funny to me. This is a crummy trust that we're going to set up. And it really doesn't have anything to do with it being crummy.
The guy's name was Crummy. Crummy against the IRS or whatever. And it has to do with a gift of a present interest.
So let's not get too hung up on that. So we're going to set up an irrevocable life insurance trust with crummy provisions. And the people that are going to set up the trust are Joe and Alice.
And we're in the process of doing that with them through an attorney right now. And they're just writing a trust that by itself is designed to hold a life insurance policy. And they're only putting to get started like $1,000 in the trust just so it has some money in there just to get it started. And so where it comes into place is when they pay the premiums, if Joe or Alice pay the premium on this life insurance, if they pay it directly to the life insurance company and skip the trust, they are going to violate the provisions. And this life insurance could be included in their estate. So the whole need for the trust is to create a receptacle so there's a go between between Joe and Alice paying the premium and the life insurance company receiving the $29,000. So here's what we're going to do is when the first premium is due, Joe is going to give Sue $15,000.
But he's not going to give Sue a check. He's going to write the check into the trust. And Alice is going to give Rita $15,000. So they've just gifted under the $19,000 into the trust. So we got $30,000 in the trust. And he didn't give it directly to Sue and she didn't give it directly to Rita. They put it into the trust. And then the trust sends a crummy letter that says Sue, you got 30 days to come get your gift. And Rita, you got 30 days to get your gift. And then of course, Sue and Rita are not going to go get their gift.
Okay. And if they do, they're going to mess up the whole thing. And then the trust is going to pay the life insurance premium. And this is going to go on every year for 10 years. And then when the life insurance gets paid up after 10 years, then it's just going to sit there.
No more premiums due. And then the trust is just going to sit there and owns the life insurance policy. And it is going to have about $1,000 left in it or whatever's left in it. And it's just going to sit there until both of them are gone. And then the life insurance is going to pay off to the beneficiaries, which are Sue and Rita and the whole thing is outside of the trust. Which again, is critical.
Yeah. But again, it gets back to the real issue is they're inheriting a bunch of real estate that isn't liquid to pay the taxes. So in order, you know, if they inherited this real estate, and then they were a bunch of taxes too, and they didn't have the cash to pay that they'd have to sell the real estate, which they would lose the rent. In other words, what a brilliant way to, you know, give them a continual income for, you know, as long as they can keep it together. The same thing if somebody had a business, right? So there's all sorts of people that, you know, unbeknownst to them, they set up something that their heirs would end up over this.
And again, if the thing sunsets, it drops to 7 million, then all of a sudden, it's a whole new ballgame, right? Well, you just think about the family businesses of people, you know, that are very successful. And, you know, they're multi-generational. They got, you know, mom and dad started, maybe grandma and grandpa started it. And then mom and dad have been, you know, who they think started it. And then the adult kids or the kids, you know, that are in their 40s are running it.
And then the kids that are in their teens and 20s are working in there. And part of that, and that whole thing gets disrupted by estate taxes. Well, we ran out of time again, but we want to remind you that the show is brought to you by Cardinal Guide, cardinalguide.com, or you're going to see the Seven Worries tab. Today's show would be under the Estate tab. And if you go to that, you're going to find a video along these same lines. And of course, my favorite thing at Cardinal Guide is the contact Hans or Tom page or tab there that we just go there and get that information. Or Hans' book, The Complete Cardinal Guide to Planning for or Living in Retirement. Thanks, Hans.
Thank you and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.
Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.
Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a Registered Investment Advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.
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